Paytm plans to spin off its marketplace to allow Alibaba Group establish a direct presence in India

BENGALURU: Paytm is considering a plan to spin off its online marketplace to allow China’s Alibaba Group to establish a direct presence in the world’s fastest growing ecommerce market, three people aware of the developments told ET.

Paytm is in talks with Alibaba Group for an additional investment of $300-400 million (Rs 1,990-2,655 crore) in its marketplace, a person directly aware of the negotiations said, while declining to disclose the valuation at which the money would be raised.

“Paytm may spin off its marketplace business, which will have Alibaba as a majority stakeholder in that company and allow (the Chinese firm) to organically expand in India,” this person said, adding that the Indian firm’s payments bank, digital wallet and online-to-offline business categories such as bus ticketing and travel would likely be run as a separate business.

Alibaba and Paytm declined to comment on what they said was market speculation. Alibaba declared on Friday that it would enter the ecommerce business in India this year, after a meeting with Communications and Information Technology Minister Ravi Shankar Prasad

That would pit the Chinese internet conglomerate directly against domestic giants Flipkart and Snapdeal as well as Amazon, further fuelling the intense rivalry in the industry. India’s online retail market, which Goldman Sachs projects will expand to $36 billion in 2016-17 from $11billion in 2014-15, has emerged as a significant battlefield for world’s largest ecommerce companies.

While Alibaba together with its affiliate Ant Financial is the largest stakeholder in Paytm with a 40% share, Amazon last year committed an additional $2 billion to making India its largest market outside the United States.

Alibaba also owns about 5% in Snapdeal and was in discussions recently to invest in Flipkart as well. Japan’s SoftBank, an early investor in Alibaba, owns about a 30% stake in Snapdeal.

Morgan Stanley in a recent report said competition from international companies with deep pockets and considerable business experience would put pressure on homegrown entrepreneurs.

“Most successful Indian startups have been able to attract global venture capital/private equity funds so far, but any slowdown because of global economic conditions could significantly affect the growth and valuations of these companies,” it said.

Last week, Paytm announced that it had hired Bhushan Patil, former head of Alibaba’s wholesale business, as V-P, saying he would focus on expanding to other countries, similar to what he did at Alibaba.

Paytm, which was valued at $3.4 billion in September after raising about $680 million from Alibaba and Ant Financial, is targeting gross merchandise value, or gross sales not factoring in discounts, of $10 billion this year.

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